You Won’t “Make It Up In Volume”
The whole assumption behind discounting is that, by giving up a portion of your normal profit margin, you’ll offset the loss through increased sales. Guess what? This may work for a huge company like Wal-Mart. It most likely will not, however, work for you.
Case in point: How many more pair of fins will you need to sell to offset the loss incurred by offering just a five percent discount? Assuming a seven percent net profit margin, the answer is four and a half times as many fins as you normally would. Will offering a five percent discount increase sales by 350 percent? Of course not.
But now look at the flip side: What if you were to take an item, such as fins, for which sales depend more on convenience, availability and trust than they do on selling price and increase the price by seven percent? Would you sell fewer fins? Possibly. However, you’d have to sell less than half as many fins as you did previously before you’d stop coming out ahead.
This is really what it comes down to. If you are like many dive retailers, you are probably offering discounts on items you don’t have to. There are also items you could be charging more for that you aren’t. Eliminating unnecessary discounts and increasing profit margins on items that are not price sensitive can have a dramatic effect on your store’s bottom line — possibly doubling it with surprisingly little effort.
To do so, however, you need information. You need to know what items are costing you, what the real expenses involved in selling them are and how much you can get away with selling these items for before you begin losing enough sales to make a difference. (Hint: If you are not losing at least the occasional sale over price, you are probably not charging enough. There are some customers you just don’t want.)
Fortunately, computers, point-of-sale software and programs like Microsoft Excel make this easier than ever. You just have to be willing to use them.
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